Economics

Sugar Policy: Sweet Deal for Producers, Sour for Consumers

In a recent Wall Street Journal letter titled “The Sugar Program Makes Sense,” the American Sugar Alliance’s chief economist claimed that “sugar policy operates at no cost to the government and is projected to do so for the next decade.” While it’s true that U.S. sugar producers haven’t tapped American taxpayers directly since the beet sugar farmers raked in more than $240 million in farm subsidy payments from 2000 to 2005, U.S. sugar policy does force American consumers to pay out billions of dollars every year in higher sugar prices to support the “Big Sugar” cartel.

Due to protectionist trade policies that limit the amount of sugar imports entering the United States at the much lower world price, the American sugar producers are protected from more efficient foreign sugar growers in Central America, Africa, and the Caribbean who can produce sugar at half the cost of beet sugar farmers in Minnesota, North Dakota, and Michigan. The chart below compares prices for domestic beet sugar and world cane sugar from 1982 to 2010, using data from the USDA.

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Our long-standing protectionist sugar program has forced American consumers and U.S. sugar-using businesses to pay twice the world price of sugar on average since at least 1982 (27.6 cents for domestic sugar vs. 13.6 cents for world sugar, see chart). Last year, Americans paid an average of 53.3 cents per pound for domestic sugar, almost double the average world price of 27.7 cents per pound. Exactly how much did Americans pay last year for our “no cost” sugar policy? An astounding $4.5 billion, calculated as follows:

1. Americans consumed 22 billion pounds of sugar last year, and 17.5 billion pounds of that sugar was produced by U.S. sugar growers.

2. Due to quotas that are a key part of U.S. sugar policy, Americans were only allowed to purchase about 4.5 billion pounds of foreign-produced sugar last year at the world price, or about 20 percent of the total sugar consumed. “Big Sugar” is allowed to control 80 percent of the U.S. sugar market as a direct result of protectionist trade policies that have allowed domestic sugar growers to operate like an OPEC-style cartel for generations.

3. If sugar quotas were eliminated, American consumers and business would have been able to purchase 100 percent of their sugar at the average world price of 27.8 cents per pound last year instead of the U.S. price of 53.2 cents per pound. By forcing consumers to pay 53.2 cents per pound for inefficiently produced domestic sugar, American consumers and sugar-using businesses paid an additional 25.4 cents per pound last year over the world price for each of the 17.5 billion pounds of domestically produced sugar, which totals to almost $4.5 billion in higher sugar costs in 2010 for Americans due to our sugar policy.

Bottom Line: The cost of most trade protection is largely invisible and therefore hard to calculate, but the cost of sugar protection is directly observable and easy to measure, because the USDA and futures markets regularly report prices for both high-cost domestic sugar and low-cost world sugar. Like all trade protection, sugar quotas exist to protect an inefficient domestic industry (U.S. sugar farmers) from more efficient foreign producers, and come at the expense of the U.S. consumers and the American companies using sugar as an input. The sugar program diverts billions of dollars from American consumers to the “Big Sugar” cartel and would understandably make sense to the members of the American Sugar Alliance. But that very costly program certainly doesn’t make any sense at all for the millions of American consumers and thousands of U.S. businesses who were burdened last year alone with $4.5 billion in higher sugar costs.

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